The
management of taxation is a difficult thing in any country. It involves
a number of competing interests, trade-offs and compromises.

Who
do you tax, how do you tax, which sectors are to be taxed? Is taxation
merely a form of government revenue collection or is it also to be used
a method of social engineering? At what point does taxation become counter-productive?

These
are all issues governments have to deal with, and they’re never
going to make everybody happy.

Ronald
Reagan said that “Government's view of the economy could be summed
up in a few short phrases: If it moves, tax it. If it keeps moving, regulate
it. And if it stops moving, subsidize it.”

Mexico
has a tax collection rate of 14% of Gross Domestic Product, lower than
the average in Latin America. However, this is not the result of libertarian
tax philosophy, it’s due to widespread tax evasion.

What
the Mexican government has done for years to make up the shortfall is
to use PEMEX, the state oil monopoly as a source of government revenue.
But the constant raiding of PEMEX coffers causes various problems which
must be dealt with. (For more on that topic, see my recent article The
Future of PEMEX, Mexico's Petroleum Monopoly, an Ongoing Debate).

Mexican
President Enrique Pena Nieto proposed a fiscal reform and after being
worked over in the Mexican Congress, has been passed by that legislative
body. The reform is set to take effect in 2014.

As might
be expected, the measure is a hodge-podge of taxes levied on certain sectors
of the Mexican economy, while others get off the hook. Ordinary Mexicans
can expected to pay more in taxes when purchasing various products.

Social
engineering is a part of the new fiscal reform. Mexico now has a high
obesity rate. In fact, it has dethroned the United States as the most
obese nation in the world. (Given Americans’ high obesity rate,
that was no mean accomplishment!)

Obesity
is now a weighty matter deliberated upon by Mexico’spresident and
congress.

Coca-Cola
has been blamed as one of the culprits for Mexico’s obesity. After
all, Mexico is the number #1 Coca-Cola drinking nation. The beverage has
been referred to jokingly as “the black waters of American imperialism”.
Mexican Coca-Cola is sweeter than that sold in the U.S.A.

Coca-Cola
is imbibed at meals in Mexico, is sold on the street and seems to be available
all over the place. Even cops taking bribes ask for money “to buy
a coke.”

The
new fiscal reform is slapping a tax increase of one peso per liter on
Coca-Cola and other soft drinks for consumers, and an 8% increase on the
production end. Of course, when you tax a company, that tax is simply
passed on the company’s consumers.

Junk
food is to be taxed with an 8% hike at the production end (which of course
is passed on to consumers). How do you define “junk food”?

Mexico
now has a legal formula for junk food, based upon the quantity of calories
per gram. Such tasty treats as candy, chocolate, marshmallows and ice
cream are included. Cigars, however, are free of any tax hike.

A 16%
tax hike on chewing gum is to be levied. How will this effect the boys
who hawk chewing gum at stoplights?

Mexico
has a vast network of bus service throughout the country, used by the
middle and lower classes. Inter-city bus and train travel are to be taxed
16%, but not transport within urban areas.

Private
school tuition is not to be taxed as part of the new fiscal regime.

The
retail purchase of gold, jewelry and artistic and ornamental pieces is
not taxed if the gold content 80% or more.

Soccer
and baseball games, movies, theater productions and circuses have now
new taxes.

Jet
fuel, however, is to be taxed 12.40 pesos per liter. The purchase of a
home under a certain value is not to be taxed.

As far
as personal tax rates, the highest bracket is 35%. Earnings from the stock
market are taxed at 10%. Small businesses are allowed a period of 10 years
to fully actualize into the new system.

To the
consternation of pet owners, the new tax law is raising taxes 16% on pet
food. It taxes the sale of pets.

Why?
Because pets are considered a “luxury,” as if only rich Mexicans
owned them.

Dogs
and cats, however, provide their owners with companionship. And in today’s
violent-crime plagued Mexico, watch dogs are valuable and can save human
lives.

Some
have predicted an increase in pet malnutrition and to the abandonment
of more pets.

Stray
dogs are already a big enough problem in Mexico, including in urban areas.
It’s estimated that there are 27 million dogs and cats in Mexico,
but of that total 14 million (over half) have no owner and no home. That’s
a big health problem, not to mentionbeing hard on the homeless animals.
Domestic canines, especially, have been bred for millennia to serve mankind
and do not do well when turned loose.

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But,
the canine food tax hike is the law, to take effect with the rest of it
in 2014. Man’s best friend’s nourishment is to be taxed.

Some
families can get around this by feeding their pets scraps from their own
tables. After all, food for people isn’t being taxed in the new
tax regime.

So Mexican
pet owners may just have to calculate which is cheaper - feeding their
canines dog food which has become more expensive or tossing them scraps
of the family meal. And what food does the dog like? Our canine friends,
after all, have their own likes and dislikes.

Either
way, you might say that Mexican fiscal reform has “gone to the dogs”.
“It’s a dog’s life.”

Who do you tax, how
do you tax, which sectors are to be taxed? Is taxation merely a form of
government revenue collection or is it also to be used a method of social
engineering? At what point does taxation become counter-productive?